IRC 2031 and 2032: Gross Estate Definition, Date-of-Death Valuation, and the Alternate Valuation Date Election

Overview: IRC 2031, IRC 2032, and the Role of Gross Estate Computation

The federal estate tax begins with a single foundational question: what is included in the gross estate, and at what value? IRC 2031 answers the first part of that question by defining the gross estate as all property in which the decedent owned or had an interest at the moment of death, and it anchors that property to a fair market value standard as of the date of death. IRC 2032 answers a narrower follow-on question: under specific conditions, can the executor elect to value the gross estate as of an alternate date six months after death instead?

These two provisions govern the starting point for every federal estate tax calculation reported on Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return). The gross estate value computed under IRC 2031 flows into the Form 706 computation under IRC 2001, where it is reduced by allowable deductions (under IRC 2053 for debts and expenses, IRC 2055 for charitable bequests, and IRC 2056 for the marital deduction, among others) to produce the taxable estate. The taxable estate is then compared against the available basic exclusion amount under IRC 2010 to determine whether any estate tax is owed.

A critical distinction for practitioners: the gross estate is not the same as the probate estate. The probate estate is the property that passes under the decedent's will or the intestacy laws of the applicable state -- the assets a court-supervised probate proceeding administers. The gross estate for federal estate tax purposes is broader, capturing non-probate transfers and assets that pass by operation of law, beneficiary designation, or contract. The gap between the two can be substantial for clients who have used revocable trusts, life insurance, joint tenancy, and retirement accounts as the primary vehicles for transferring wealth.

With the OBBBA permanently increasing the basic exclusion amount to $15 million per person (verify at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending), the practical importance of IRC 2031 gross estate computation has shifted. Estates that were clearly taxable under the pre-OBBBA $12.92 million exemption may now fall below the $15 million threshold. But for estates in the $15M-$30M range (the band most affected by the permanent exemption change), and for any estate where asset values declined in the six months after death, the IRC 2031 and IRC 2032 analysis can determine whether any estate tax is owed at all. Verify current IRS guidance and Form 706 instructions at IRS.gov before filing.

IRC 2031(a): The "All Property" Standard

IRC 2031(a) states the broadest possible scope for the gross estate: the gross estate shall include the value of all property, real or personal, tangible or intangible, wherever situated, in which the decedent owned or had an interest at the time of death. This is not a narrow definition. It is designed to reach every form of economic ownership -- from real estate in multiple states and countries, to shares in a closely held business, to intellectual property rights, to beneficial interests in trusts, to digital assets and cryptocurrency.

Real vs. Personal Property

Real property (land, buildings, and improvements affixed to land) is included in the gross estate at its fair market value as of the date of death (or the alternate valuation date, if elected). Personal property is everything else -- stocks, bonds, bank accounts, vehicles, artwork, jewelry, household goods, business interests, and intangible property such as patents, copyrights, and contractual rights. Both categories are captured under IRC 2031(a) regardless of where in the world the property is located.

Tangible vs. Intangible Property

Tangible property has physical existence: real estate, vehicles, equipment, inventory, artwork, collectibles, and household goods. Intangible property does not have physical existence in the relevant legal sense: stocks, bonds, partnership interests, notes receivable, insurance policies, annuity contracts, intellectual property, and digital assets. Both are includible in the gross estate under IRC 2031(a). The Treasury Regulations under Subpart B of Part 20 (Treas. Reg. 20.2031-1 through 20.2031-9) set out asset-specific valuation methods for both categories.

The "Owned or Had an Interest" Standard

IRC 2031(a) reaches not only property the decedent owned outright at death, but also property in which the decedent had any interest at the moment of death. This phrasing is the basis for including partial interests (minority interests in closely held entities, fractional interests in real property, remainder interests in trusts), as well as interests that do not constitute outright ownership but confer economic rights (beneficial interests in revocable trusts, rights under annuity contracts, powers of appointment). The asset-specific inclusion rules in IRC 2036-2042 flesh out how particular categories of indirect interests are brought into the gross estate. Verify at IRS.gov.

Wherever Situated

The "wherever situated" language in IRC 2031(a) establishes that the federal estate tax gross estate is worldwide for U.S. citizens and domiciliaries. Foreign real estate, offshore accounts, interests in foreign entities, and assets held in foreign trusts can all be included in the gross estate of a U.S. citizen or resident decedent. Non-resident aliens are subject to a narrower inclusion rule (IRC 2103 limits the gross estate to U.S.-situated property for non-residents who are not citizens), but for U.S. citizens and domiciliaries, IRC 2031(a) sweeps globally. Verify the current treatment of foreign situs property at IRS.gov and consult qualified international estate tax counsel when the decedent held significant offshore assets.

Probate Estate vs. Gross Estate: Non-Probate Assets Included in the Gross Estate

The most common valuation and planning error practitioners encounter is the assumption that the estate tax gross estate tracks the probate estate. It does not. A decedent who has carefully structured all of their assets to avoid probate -- through a revocable living trust, beneficiary designations on retirement accounts and life insurance, joint tenancy arrangements, and payable-on-death accounts -- may have a probate estate of nearly zero, while the gross estate for federal estate tax purposes includes every one of those assets.

The following categories of non-probate assets are included in the gross estate under the asset-specific inclusion rules in IRC 2036-2042:

Life Insurance Proceeds (IRC 2042)

Life insurance proceeds payable to the estate are included in the gross estate under IRC 2042(1). Proceeds payable to other beneficiaries are included under IRC 2042(2) if the decedent possessed any "incidents of ownership" in the policy at death -- including the power to change the beneficiary, borrow against the policy, surrender or cancel the policy, or pledge the policy as collateral. The face amount of life insurance policies owned by the decedent, not just the cash surrender value, is included in the gross estate if the decedent held incidents of ownership. Verify at IRS.gov.

Jointly Held Property (IRC 2040)

Property held in joint tenancy with right of survivorship is included in the gross estate of the first joint tenant to die. Under IRC 2040(a), 100% of the value of jointly held property is included in the gross estate of the first decedent, except for the portion attributable to the surviving joint tenant's contribution. An important exception under IRC 2040(b) provides that for property held by a decedent and the decedent's spouse as joint tenants, exactly 50% of the value is included in the decedent's gross estate, regardless of who contributed the purchase price. Verify at IRS.gov.

Qualified Retirement Accounts and Annuities (IRC 2039)

The value of annuities and retirement benefits payable to or for the benefit of a beneficiary (other than the estate) by reason of surviving the decedent is included in the gross estate under IRC 2039. This reaches IRA balances, 401(k) plan accounts, pension benefits, deferred compensation arrangements, and commercial annuities with a survivor benefit. The amount included is the present value of the payments the designated beneficiary has the right to receive. Verify the current IRC 2039 inclusion rules and applicable exceptions at IRS.gov.

Transfers with Retained Interests (IRC 2036-2038)

Property transferred by the decedent during life is pulled back into the gross estate under IRC 2036-2038 in several circumstances:

• IRC 2036: Transfers in which the decedent retained the right to the income from the property, the right to use or enjoy the property, or the right to designate who shall possess or enjoy the property -- for life, for a period not ascertainable without reference to death, or for a period that did not end before death -- are included in the gross estate at the date-of-death fair market value of the transferred property.
• IRC 2037: Transfers in which the beneficiary can possess or enjoy the transferred property only by surviving the decedent, and in which the decedent retained a reversionary interest exceeding 5% of the value of the property immediately before death, are included in the gross estate.
• IRC 2038: Transfers in which the decedent retained the power to alter, amend, revoke, or terminate the transfer are included in the gross estate. This captures revocable trusts: a revocable living trust is fully included in the grantor's gross estate at death even though trust property passes outside probate.

Verify the current statutory scope of IRC 2036-2038 and applicable regulatory exceptions at IRS.gov before advising on any retained-interest transfer.

General Powers of Appointment (IRC 2041)

Property over which the decedent held a general power of appointment at the time of death is included in the gross estate under IRC 2041(a)(2), whether or not the decedent exercised the power. A general power of appointment is the power to appoint property to oneself, one's estate, one's creditors, or the creditors of one's estate. Special powers (powers to appoint only among a limited class of persons that does not include the decedent, the decedent's estate, or the decedent's creditors) are not general powers and are not included under IRC 2041. The value included equals the value of the property subject to the power at the date of death. Verify at IRS.gov.

Treas. Reg. 20.2031-1: The Willing-Buyer/Willing-Seller Standard for Fair Market Value

The fair market value standard is the cornerstone of all IRC 2031 gross estate valuation. Treas. Reg. 20.2031-1(b) defines fair market value as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.

The Hypothetical Buyer and Seller

The willing buyer and willing seller are hypothetical: they are not the actual decedent, the actual estate, or the actual beneficiaries. The regulation requires the practitioner to determine the price a hypothetical arm's-length transaction would produce -- a price that reflects what a well-informed, non-compelled third party would pay for the property. This means:

• The fact that the estate must sell assets to pay expenses or taxes does not make the sale a "compelled" sale that reduces fair market value. The hypothetical seller is not under compulsion even if the actual estate is under financial pressure.
• The fact that no actual buyer exists for an illiquid asset does not eliminate the need to determine a fair market value. The practitioner must model the price a hypothetical buyer would pay given available information.
• The price must reflect the specific property being valued, not an averaged or idealized version. A minority interest in a closely held company is not valued as if the hypothetical buyer were acquiring the whole company; the buyer is acquiring that specific minority interest with all its attendant limitations.

Reasonable Knowledge of Relevant Facts

Both the hypothetical buyer and seller are presumed to have reasonable knowledge of all relevant facts about the property. For a closely held business, relevant facts include the company's financial statements, projections, industry conditions, pending litigation, key-person risks, and any other information a reasonable buyer conducting due diligence would discover. For real property, relevant facts include comparable sales, zoning, environmental conditions, and lease terms. The practitioner-appraiser is expected to identify and disclose all material facts in the valuation report so that the hypothetical transaction rests on the same information base a real-world buyer would use. Verify the current regulatory standard at IRS.gov.

Fair Market Value Differs from Other Standards

Fair market value for estate tax purposes can differ significantly from other valuation standards. Book value (net asset value on the company's financial statements) is not fair market value. The cost basis of the property is not fair market value. The value used for financial reporting under GAAP is not necessarily fair market value. Insurance replacement cost is not fair market value. Each of these measures asks a different question; the willing-buyer/willing-seller standard asks only what a real transaction between informed, arm's-length parties would produce. Verify current IRS positions on valuation methodology at IRS.gov.

Valuation of Specific Asset Classes Under the Treasury Regulations

The Treasury Regulations under Treas. Reg. 20.2031-1 through 20.2031-9 provide asset-specific valuation guidance for the major categories of property that appear in estates. The following covers the most significant categories practitioners encounter in Form 706 preparation.

Publicly Traded Securities (Treas. Reg. 20.2031-2)

The value of stocks and bonds traded on established securities exchanges is generally the mean between the highest and lowest quoted selling prices on the valuation date. If there were no sales on the valuation date but there were sales on dates within a reasonable period before and after, the value is determined by a weighted average of the sales prices. If only bid and asked prices are available (as for over-the-counter securities), the fair market value is the mean between the bona-fide bid and asked prices on the valuation date. Verify current Treas. Reg. 20.2031-2 requirements and the applicable averaging methods at IRS.gov before reporting any publicly traded security position on Form 706.

Blockage Discounts for Large Blocks (Treas. Reg. 20.2031-2(e))

When the estate holds such a large block of publicly traded stock that selling the entire block on the valuation date would have a depressing effect on the market price, a blockage discount may be warranted under Treas. Reg. 20.2031-2(e). In that case, the mean-between-high-and-low-selling-price rule does not apply; instead, the value is determined by the price at which the block would be sold as a whole -- which may be below the quoted market price to reflect the market impact of disposing of the block. A blockage discount must be substantiated by expert analysis demonstrating the size of the discount and the basis for it. The IRS scrutinizes blockage discount claims carefully, and an unsupported or overstated discount can produce an IRC 6662 accuracy-related penalty. Verify at IRS.gov.

Closely Held Stock and Business Interests (Treas. Reg. 20.2031-2(f))

Shares in a closely held corporation (one with no established market for its shares) and interests in partnerships or LLCs are valued under Treas. Reg. 20.2031-2(f) by reference to the company's net worth, earning power, dividend-paying capacity, and all other relevant factors, including the goodwill of the business, comparable sales of similar businesses, comparable publicly traded companies in the same industry, and the values at which arm's-length sales of the stock have occurred within a reasonable period before and after death. Revenue Ruling 59-60 (verify current status at IRS.gov) provides the foundational eight-factor framework for valuing closely held corporate stock under the fair market value standard; most estate tax appraisals of closely held businesses use this framework as a starting point.

Real Property (Treas. Reg. 20.2031-1)

Real property is valued at the price at which it would change hands between a willing buyer and willing seller in a hypothetical arm's-length transaction. The three primary approaches to real property valuation are: (1) the sales comparison approach (based on recent sales of comparable properties); (2) the income approach (capitalizing the property's net operating income at a market capitalization rate); and (3) the cost approach (replacement cost less depreciation). For most residential and commercial properties, the sales comparison and income approaches carry the most weight. A qualified appraisal by a state-certified or state-licensed appraiser is generally required to support real property values on Form 706. Verify current qualified appraisal requirements at IRS.gov.

Notes and Mortgages

Notes and mortgages receivable are included in the gross estate at their fair market value on the date of death. For performing notes at current market interest rates, fair market value is generally close to the outstanding principal balance. For notes bearing below-market interest rates, fair market value is the present value of the remaining principal and interest payments discounted at the market rate for comparable obligations. A note that is not collectible at face value (because the obligor is insolvent or the collateral is inadequate) must be valued to reflect the realistic recovery expectation. Verify current valuation guidance for notes and mortgages at IRS.gov.

Household Goods and Personal Effects

Household goods, furniture, clothing, and ordinary personal effects are typically valued at their fair market value on the date of death, which for most ordinary household contents is significantly below their purchase price. For collections of significant value -- artwork, jewelry, antiques, numismatic coins, firearms collections -- a qualified appraisal by a specialist in that category is required. Form 706, Schedule F requires the estate to list all household and personal property and to identify any items appraised by a specialist. Verify current Form 706 Schedule F instructions at IRS.gov.

Annuities and the Interplay with IRC 2039

Commercial annuities with a survivor benefit are includible under IRC 2039 at the value of the remaining payments determined as of the date of death. For a joint-and-survivor annuity still in pay status at the decedent's death, the amount included in the gross estate is the present value of the survivor's future payments, calculated using the applicable actuarial tables in Treas. Reg. 20.2031-7 (verify current actuarial table requirements at IRS.gov). For a deferred annuity that has not yet entered pay status, the amount included is generally the value the insurance company would pay to surrender the annuity or the present value of the future payment stream, whichever better reflects the hypothetical transaction price. Verify at IRS.gov.

Minority Interest Discounts and Lack-of-Marketability Discounts in Estate Tax Valuation

Two categories of valuation discounts appear with greatest frequency in estate tax controversies involving closely held business interests and fractional property interests: minority interest discounts and lack-of-marketability discounts. Both are grounded in the willing-buyer/willing-seller standard, on the theory that a hypothetical buyer would pay less for a non-controlling interest or an interest that cannot be readily sold.

Minority Interest Discounts

A minority interest discount reflects the diminished value of an ownership interest that does not carry control of the entity. A hypothetical buyer of a 30% interest in a closely held LLC has no ability to force a sale, compel distributions, or direct management decisions; a buyer of a 51% interest has all of those abilities. The willing-buyer/willing-seller standard recognizes this economic reality: the minority buyer pays less per percentage point than a buyer acquiring a controlling interest would pay. Minority interest discounts in estate tax valuations typically range from 15% to 35% or more, depending on the entity's governance documents, the specific rights of the minority interest, and comparable market evidence; verify any specific discount with a qualified appraisal and current IRS guidance at IRS.gov.

Lack-of-Marketability Discounts

A lack-of-marketability discount reflects the reduced value of an interest that cannot be readily converted to cash. A minority interest in a publicly traded company can be sold on the open market the same day; a minority interest in a closely held LLC may take months or years to sell, if it can be sold at all, and may require the buyer to accept significant rights restrictions under the entity's operating agreement. The liquidity premium embedded in publicly traded securities is absent in closely held interests, and the discount for illiquidity is a separate and cumulative adjustment to value. Lack-of-marketability discounts are typically applied after any minority interest discount and can range from 20% to 40% or more in appropriate cases; verify any specific discount with a qualified appraisal and current IRS guidance at IRS.gov.

IRS Scrutiny and Case Law

The IRS has long scrutinized both types of discounts, particularly in family limited partnership (FLP) and family LLC structures where discounts are claimed on transfers of interests among family members. The IRS frequently argues that the entity should be disregarded (under IRC 2036 or substance-over-form principles) or that the applicable discounts are overstated. A substantial body of Tax Court case law has developed around the validity of FLP structures and the appropriate level of valuation discounts -- including cases such as Estate of Strangi v. Commissioner, Kimbell v. United States, and Estate of Powell v. Commissioner (verify current precedential status of any cited authority at IRS.gov and with qualified counsel). The weight of case law generally supports reasonable discounts when the entity has a legitimate non-tax business purpose and the discount is supported by a qualified appraisal; abusive structures with no economic substance are disregarded. Consult qualified estate planning and valuation counsel before claiming substantial valuation discounts on Form 706.

Qualified appraisal requirement: For closely held business interests, real property, and other assets without readily available market quotations, the estate must support Form 706 reported values with qualified appraisals prepared by qualified appraisers. An appraisal that does not satisfy the qualified appraisal requirements under IRC 170(f)(11) (made applicable to estate tax by Treas. Reg. 20.2031-2(f) and related provisions) may not protect the estate against an IRC 6662 accuracy-related penalty if the IRS successfully challenges the reported value. Verify current qualified appraisal standards, appraiser qualification requirements, and penalty protection rules at IRS.gov before finalizing any Form 706 valuation position.

IRC 2032: The Alternate Valuation Date Election -- General Rule

IRC 2032 provides an election that allows the executor to value the gross estate as of a date six months after the decedent's date of death instead of as of the date of death. This election can produce significant estate tax savings when asset values have declined in the six-month period following death, but it is available only when two conditions are both satisfied.

The Dual-Decline Requirement

Under IRC 2032(c), the alternate valuation date election is available if and only if its use results in a decrease in BOTH: (1) the value of the gross estate, AND (2) the amount of the estate tax imposed under IRC 2001 (after applying any allowable credits, including the unified credit under IRC 2010). Both conditions must be satisfied simultaneously. If the gross estate value declines but the estate tax liability does not decline (for example, because the reduction in estate value is entirely absorbed by a deduction for a charitable bequest or the marital deduction, so the taxable estate is unchanged), the election is not available. If the estate tax liability declines but the gross estate value does not decline (a situation that can occur when there are offsetting asset class changes), the election is likewise unavailable. Verify the current dual-decline test requirements at IRS.gov.

The Election Is Binding and All-or-Nothing

Once made, the alternate valuation date election is binding and irrevocable after the due date of the estate tax return (including extensions). The executor cannot cherry-pick which assets to value at the alternate date and which to value at the date of death (with the exception of disposed-of assets, discussed below). The election applies to the entire gross estate -- every asset not disposed of before the alternate date is valued at its fair market value as of the alternate valuation date. An executor who makes the election expecting a tax reduction and later discovers the dual-decline test is not met must value all assets at the date of death, potentially correcting a return filed with incorrect alternate valuation. Verify at IRS.gov.

The Alternate Valuation Date: Six Months After Date of Death

The alternate valuation date is the date that is six months after the decedent's date of death. If the decedent died on January 15, 2026, the alternate valuation date is July 15, 2026. Assets still in the estate as of the alternate valuation date are valued at their fair market value on that date (using the same willing-buyer/willing-seller standard under Treas. Reg. 20.2031-1 that applies to date-of-death valuations). All the asset-specific valuation methods applicable to date-of-death valuation apply equally at the alternate valuation date. Verify current procedural requirements and the specific mechanics of alternate date valuations at IRS.gov.

Exceptions: Assets Disposed of Within 6 Months of Death

IRC 2032(a)(1) creates a specific exception to the general alternate valuation date rule for assets that are distributed, sold, exchanged, or otherwise disposed of within six months of the decedent's date of death. For these assets, the value used is not the alternate valuation date (six months after death) but rather the value on the date of the disposition itself.

Why This Exception Exists

The disposed-assets exception prevents a distortion that would arise if assets sold shortly after death for their then-current fair market value were subsequently required to be revalued at a different date. If the estate sells stock for $500,000 three months after death (realizing the actual market price), it would be anomalous to value that stock at whatever price prevailed at the six-month alternate date -- which might be higher or lower than the actual sale price. The disposition date captures the actual economic event: the estate received what the market offered on the day it sold.

What Qualifies as a Disposition

A disposition under IRC 2032(a)(1) includes sales, exchanges, distributions to beneficiaries, and any other event that takes the asset out of the estate within the six-month window. A distribution of specific property to a beneficiary is a disposition valued at the date of distribution; a sale of real property closing three months after death is valued at the sale price (which, as an arm's-length transaction, is presumptively equal to fair market value on the date of sale). Partial dispositions -- selling part of a block of stock while retaining the rest -- are valued at the partial disposition price for the sold portion, with the retained portion valued at the alternate valuation date. Verify the current scope of "disposition" for IRC 2032(a)(1) purposes at IRS.gov.

Interaction with Estate Administration Decisions

The disposed-assets exception creates a planning dimension in estate administration: whether to sell assets before or after the alternate valuation date can affect the gross estate value and the estate tax calculation. An executor considering whether to liquidate assets to fund estate expenses or distribute property to beneficiaries should consult with the estate's tax adviser before making asset disposition decisions in the six-month window following death, particularly if the alternate valuation date election is being considered. The timing of dispositions can affect which values are captured in the gross estate. Verify all relevant IRS guidance at IRS.gov and consult qualified counsel before making estate administration decisions with valuation implications.

Wasting Assets and the Alternate Valuation Date

IRC 2032(a)(2) addresses a category of assets that Congress recognized would produce an unfair result if valued at the alternate valuation date under the general rule: assets whose value changes not because of market forces but purely because of the passage of time. These are called wasting assets, and they are excluded from alternate valuation.

The Wasting Asset Rule

Under IRC 2032(a)(2), any interest or estate that is affected by "mere lapse of time" is included in the gross estate at its date-of-death value, not the alternate valuation date value. The regulation under this provision requires the practitioner to use the date-of-death value adjusted (using interpolation) to remove the effect of the passage of time from the date of death to the alternate valuation date. The interpolation isolates time-based value changes from market-based value changes, ensuring that only genuine market declines benefit from the alternate valuation election.

Examples of Wasting Assets

Two classic examples of wasting assets that courts and the IRS have addressed:

• Term life insurance policies nearing expiration. A term life insurance policy has a value (the interpolated terminal reserve, or the value a willing buyer would pay for the policy) that declines as the policy approaches its expiration date. If the decedent owned a term policy with three months of coverage remaining at death, the policy is worth more on the date of death than it will be at the six-month alternate date (when it has already expired). The value declines solely because of the passage of time, not because of market forces.
• Patents approaching their expiration date. A patent has a finite legal life; as it approaches its statutory expiration date, its value declines because the exclusivity period is shortening. If a patent has two years remaining at the date of death, its value at the six-month alternate date reflects a shorter remaining life -- a decline attributable to the passage of time rather than market conditions.

In each case, the asset is valued at the date of death (using interpolation to recognize the time-based value change through the alternate valuation date period), not at the alternate valuation date itself. Verify the current regulatory treatment of wasting assets and the applicable interpolation methodology at IRS.gov.

Identifying Wasting Assets in Practice

Practitioners must review the full inventory of the gross estate to identify potential wasting assets before making the alternate valuation date election. Any asset whose value decline between the date of death and the alternate valuation date is attributable to the passage of time rather than market conditions must be excluded from the alternate valuation election. Incorrectly applying alternate valuation to a wasting asset overstates the decline in gross estate value attributable to market conditions and may produce an invalid election result. Verify at IRS.gov.

Alternate Valuation Date and Portability: DSUEA Interaction

The interaction between the IRC 2032 alternate valuation date election and the portability of the deceased spousal unused exclusion amount (DSUEA) under IRC 2010 is a critical and often overlooked planning consideration. Executors who elect alternate valuation to reduce the estate tax on the decedent's estate may simultaneously reduce the DSUEA available to the surviving spouse, with adverse estate tax consequences for the surviving spouse's estate.

How the DSUEA Is Computed

Under IRC 2010(c)(4), the DSUEA is the lesser of: (1) the basic exclusion amount as of the decedent's date of death, or (2) the excess of the decedent's basic exclusion amount over the decedent's taxable estate. The taxable estate is the gross estate minus allowable deductions. A lower gross estate (produced by the alternate valuation election) produces a lower taxable estate, which in turn produces a larger DSUEA: the decedent used less of the exclusion against the taxable estate, leaving more available for portability to the surviving spouse. Verify the current DSUEA computation formula at IRS.gov.

The Portability Trade-off

At first glance, a larger DSUEA sounds unambiguously good -- more exclusion for the surviving spouse. The trade-off arises in specific circumstances where the alternate valuation election eliminates the estate tax on the decedent's estate entirely (because the reduced gross estate falls below the available exemption), but also reduces the DSUEA to a level that is less useful to the surviving spouse. If, for example, the gross estate at death is $16 million, the available exemption is $15 million, and the alternate valuation date reduces the gross estate to $14 million, the following happens: (1) no estate tax is owed on the decedent's estate (the $14 million gross estate, after deductions, falls below $15 million); and (2) the DSUEA available to the surviving spouse is reduced (the decedent's taxable estate is lower, so the "unused" exclusion portability amount may be different from what it would have been at date-of-death values).

The planning question -- whether the estate tax savings from the alternate valuation election outweigh any reduction in the DSUEA's value to the surviving spouse -- requires modeling both outcomes. In many cases, the estate tax savings on the decedent's estate are immediate and certain, while the DSUEA benefit to the surviving spouse is contingent on future facts (the surviving spouse's estate size at death, applicable exemption at that time, and whether a portability election is timely filed). Consult qualified counsel for case-specific analysis and verify current portability rules at IRS.gov.

OBBBA Context: $15M Permanent Exemption and Which Estates Are Affected

IRC 2031 and IRC 2032 were not amended by the One Big Beautiful Act (Public Law 119-21, signed July 4, 2026). However, OBBBA's permanent increase in the basic exclusion amount under IRC 2010 to $15 million changes the practical significance of gross estate computation for a broader range of estates. Verify current IRS guidance, Form 706 instructions, and any Treasury regulation updates at IRS.gov before filing an estate tax return.

Which Estates Now Require the Most Careful Valuation Analysis

Before OBBBA, the estate tax exemption was $12.92 million (2023) and scheduled to be cut roughly in half at the end of 2025 unless Congress acted. Under OBBBA's permanent $15 million exemption (verify the current indexed amount at IRS.gov), the population of estates that owe estate tax has narrowed. The estates for which the IRC 2031 gross estate identification and valuation analysis is now most consequential fall into two groups:

• Estates in the $15M-$30M range (single decedent). For an unmarried decedent with a gross estate between $15M and $30M, the exemption will shelter $15M; the excess is taxable at 40%. A $1 million error in the gross estate valuation produces a $400,000 error in the estate tax owed. Precision in IRC 2031 valuation, and a careful assessment of whether the IRC 2032 election is available and advisable, are directly material to the tax outcome.
• Estates in the $15M-$60M range (married couple, both potential exclusions at stake). For a married couple where portability is being used, both the decedent's gross estate valuation and the DSUEA computation are affected by the IRC 2031 and 2032 analysis. The alternate valuation election on the first-to-die's estate can affect the DSUEA available to the surviving spouse, which in turn affects the surviving spouse's estate tax exposure.

The Alternate Valuation Election in the $15M Exemption Environment

In the OBBBA environment, the IRC 2032 alternate valuation date election takes on heightened importance for estates near the $15 million threshold. An estate with a gross estate of $16 million on the date of death may owe estate tax on $1 million (after the exemption). If asset values declined in the six months following death such that the gross estate at the alternate valuation date is $14.5 million, the alternate valuation election (if both the gross estate value and the estate tax liability declined) could eliminate the estate tax entirely. The tax stakes are real even for estates not far above the exemption threshold. Verify at IRS.gov.

Basis Considerations in the OBBBA Environment

One trade-off that practitioners must weigh in the post-OBBBA environment is the IRC 1014 stepped-up basis. Under IRC 1014(a)(1), beneficiaries receive a stepped-up income tax basis in inherited property equal to the property's fair market value in the gross estate on the date of death. Under IRC 1014(a)(2), when the alternate valuation election is made, the beneficiaries' basis is the alternate valuation date value instead of the date-of-death value. If asset values declined between the date of death and the alternate valuation date, the alternate valuation election produces a lower stepped-up basis for the beneficiaries -- meaning more gain recognized when they sell the inherited assets. The executor must weigh the estate tax savings from the alternate valuation election against the income tax cost of the reduced stepped-up basis. Verify current IRC 1014 rules and their interaction with the alternate valuation election at IRS.gov.

Form 706 Mechanics: Schedules A Through M

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is filed by the executor of the estate of a U.S. citizen or resident when the gross estate exceeds the applicable filing threshold (verify the current filing threshold at IRS.gov). The gross estate values determined under IRC 2031 (or IRC 2032 if the alternate valuation election is made) are reported on the alphabetically lettered schedules of Form 706, each dedicated to a specific category of property or deduction. Verify all current Form 706 instructions at IRS.gov before filing.

Property Schedules (Gross Estate)

• Schedule A: Real Estate. All real property included in the gross estate under IRC 2031(a) is listed here, with the value of each parcel as of the applicable valuation date. If a qualified appraisal was obtained, the appraiser's identifying information and a summary of the appraisal must accompany Schedule A.
• Schedule B: Stocks and Bonds. Publicly traded securities are reported at the mean between the high and low selling prices on the valuation date (Treas. Reg. 20.2031-2). Closely held stock is reported at the appraised fair market value under Treas. Reg. 20.2031-2(f). CUSIP numbers and the number of shares held are required for each listed security.
• Schedule C: Mortgages, Notes, and Cash. Notes receivable, mortgages owned by the decedent, bank and brokerage accounts, and cash are reported here at fair market value on the applicable valuation date.
• Schedule D: Insurance on the Decedent's Life. Life insurance proceeds includible under IRC 2042 are reported on Schedule D. The executor must obtain Form 712 from each insurance company showing the policy details and date-of-death values.
• Schedule E: Jointly Owned Property. Property held in joint tenancy or tenancy by the entirety is reported here, with identification of each co-owner and the applicable inclusion percentage under IRC 2040(a) or 2040(b).
• Schedule F: Other Miscellaneous Property. Household goods, personal effects, artwork, collectibles, closely held business interests not reported elsewhere, and other property not covered by Schedules A through E are listed on Schedule F at fair market value on the applicable valuation date.
• Schedule G: Transfers During Decedent's Life. Property includible under IRC 2035 (transfers within three years of death of certain interests), IRC 2036 (retained life estates), IRC 2037 (reversionary interests), and IRC 2038 (revocable transfers) is reported on Schedule G. This schedule captures the non-probate non-contractual asset inclusions discussed in Section 3 above.
• Schedule H: Powers of Appointment. Property includible under IRC 2041 (general powers of appointment exercised or held by the decedent at death) is reported on Schedule H at fair market value on the applicable valuation date.
• Schedule I: Annuities. Annuity contracts and retirement benefits includible under IRC 2039 are reported on Schedule I. The present value of the survivor's payments as of the applicable valuation date is used.

Deduction Schedules

• Schedule J: Funeral Expenses and Administration Expenses. Deductible under IRC 2053(a)(1) and (2).
• Schedule K: Debts of the Decedent. Deductible under IRC 2053(a)(3).
• Schedule L: Net Losses During Administration. Deductible under IRC 2054.
• Schedule M: Bequests to Surviving Spouse. The marital deduction under IRC 2056 is claimed here. QTIP elections under IRC 2056(b)(7) are also made on Schedule M.
• Schedule O: Charitable, Public, and Similar Gifts and Bequests. The charitable deduction under IRC 2055 is claimed here.

How Gross Estate Values Flow into the IRC 2001 Computation

The total gross estate value from Schedules A through I (and Schedule G for certain inter vivos transfers) is carried to the Form 706 summary page, where allowable deductions (from Schedules J through O) are subtracted to produce the taxable estate. The taxable estate is then compared against the available basic exclusion amount under IRC 2010 (verify the current indexed amount at IRS.gov) to determine the estate tax. If the alternate valuation election has been made, Form 706, Part 3, Line 1, requires the executor to check the election box and to use the alternate valuation date values throughout all applicable schedules. Verify all current Form 706 mechanics and line references at IRS.gov before filing.

Practitioner Planning Checklist

The following checklist summarizes the key steps in a Form 706 gross estate valuation and alternate valuation date election analysis. All items must be verified against current IRS guidance at IRS.gov before relying on them in any return or planning decision.

Gross Estate Identification (IRC 2031)

• Identify all property, real or personal, tangible or intangible, wherever situated, in which the decedent owned or had an interest at death (IRC 2031(a)). Do not limit the inventory to probate assets.
• Obtain date-of-death values for all accounts, securities, and contractual interests. Request Form 712 from each life insurance company for policies in which the decedent held incidents of ownership.
• Identify all joint tenancy and tenancy by the entirety property (IRC 2040). Determine applicable inclusion percentage (100% less the co-owner's contribution for IRC 2040(a) property; 50% for IRC 2040(b) spousal property). Verify at IRS.gov.
• Identify all retirement accounts and annuities with designated beneficiaries (IRC 2039). Obtain present value calculations from plan administrators and insurance companies.
• Review all trust instruments and beneficiary designations in which the decedent held an interest (IRC 2036-2038, 2041). Consult qualified counsel on whether any retained-interest or power-of-appointment inclusion applies.
• Engage qualified appraisers for all closely held business interests, real property, artwork, collectibles, and other assets lacking readily available market quotations. Verify qualified appraisal requirements at IRS.gov.

Alternate Valuation Date Analysis (IRC 2032)

• Determine whether both conditions of the dual-decline test are met: (1) gross estate value at the six-month date is lower than at date of death, AND (2) estate tax liability (after credits) is lower with alternate valuation. Verify at IRS.gov.
• Identify assets disposed of within six months of death. Value those assets at the date of disposition (IRC 2032(a)(1)).
• Identify wasting assets (assets affected by mere lapse of time). Value those at the date of death using interpolation (IRC 2032(a)(2)). Verify at IRS.gov.
• For closely held business interests and real property, engage qualified appraisers for both the date-of-death valuation AND the alternate valuation date valuation before concluding whether the dual-decline test is met.
• Analyze the portability impact: model the DSUEA under both date-of-death and alternate valuation scenarios and compare the combined estate tax exposure for both spouses.
• Analyze the IRC 1014 basis impact: compute the income tax cost to beneficiaries of the reduced stepped-up basis at the alternate valuation date versus the date-of-death basis.
• Make the election on Form 706 (Part 3) by the return's due date (including extensions). The election is binding and irrevocable after the due date in most circumstances. Verify current election procedures at IRS.gov.

Form 706 Filing

• Complete Schedules A through I with gross estate values (date-of-death or alternate date, as applicable) and attach all required appraisals, account statements, and supporting documentation.
• Complete deduction Schedules J through O and make all applicable elections (marital deduction QTIP election on Schedule M; portability election on the estate tax return).
• Verify the current Form 706 filing threshold, due date, and extension procedures at IRS.gov before filing.
• Retain all appraisals and supporting documentation for the full IRC 6501 limitations period (at least three years from filing, six years in certain circumstances, and indefinitely in cases involving substantial omissions from income or fraud). Verify the applicable limitations period at IRS.gov.

Date-of-Death Valuation vs. Alternate Valuation Date: Key Factors and Requirements

The following table compares date-of-death valuation under IRC 2031 and the alternate valuation date election under IRC 2032 across 11 key dimensions. All figures and rules must be verified at IRS.gov before advising any client or preparing any return.